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Exclusive: Chrysler Refinancing Talks Advance, Sources Say

March 4, 2011
3 min to read


Chrysler, led by Chief Executive Sergio Marchionne, is looking to refinance a little over $7 billion of debt owed to the U.S. and Canadian governments in a deal expected to include both bank term loans and bonds, six people with knowledge of the discussions said, reported Reuters.


As part of the refinancing package, the No. 3 U.S. automaker is also expected to seek a credit facility of between $2 billion and $3 billion, these people said, asking not to be named because the discussions remain confidential.

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Chrysler, which emerged from its 2009 U.S. government-financed bankruptcy under the control of Fiat SpA, has been focused on shoring up its balance sheet as it gears up for its return to the U.S. stock market.


Clinching a credit revolver ahead of the IPO would mirror the path taken by General Motors Co last year, which secured a $5 billion credit facility ahead of its record-setting $23.1 billion IPO in November.


The United Auto Workers union, which owns a 63.5 percent stake in Chrysler through its affiliated VEBA healthcare trust, has also been involved in the discussions, one of the sources said.


Goldman Sachs has been advising Chrysler on debt restructuring, another source said. Most other major Wall Street banks have also pitched options for the refinancing, as well as how to fit that into the broader IPO plan, five of the sources said.


A Chrysler spokeswoman declined to comment.

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While a formal process to select underwriters for the IPO has yet to take place, some banks have already started what amounts to an informal pitch for a role in one of the most anticipated IPOs of the year, one source said.


The developments show the progress that Chrysler has made in its attempted turnaround under Marchionne.


Chrysler has rolled out 16 new and revamped models and built some renewed buzz for its flagship brand with a Super Bowl ad and the tagline "Imported from Detroit."


Yet Chrysler has been unprofitable, in large part because of the high interest rates on its debt to the U.S. Treasury and the Canadian government.


The automaker paid $1.23 billion in interest in 2010. In a remark that he later apologized for making, Marchionne called the bailout financing "shyster loans" that the company would need to shed.

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Chrysler has forecast net income between $200 million and $500 million for 2011, helped by the strength of its revamped models and stronger sales.


Marchionne has said that he hoped to sell stock in Chrysler in the second half of 2011 and that the automaker has been in discussions with Goldman Sachs and others on its options.


Unlike GM, where the IPO process was steered by the Obama administration, Chrysler's process has been run out of both the U.S. automaker's Auburn Hills, Michigan headquarters and Turin, Italy, where Fiat is based, several sources said.


As a result, the process could move quickly from refinancing to consideration of the IPO, several of those involved said.


But one person cautioned that Chrysler was considering a range of options for its financial restructuring that could take some time to resolve.

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"There are a lot of moving pieces, a lot of different players are involved, so it's complicated," the person said.


An IPO for Chrysler would bring the automaker back to the public market for the first time since 1998, when it was purchased by Daimler AG in what became a failed merger.


Chrysler owes $5.8 billion to the U.S. Treasury and $1.3 billion to Canada. Of that total, about $2.5 billion matures in December of this year.


Fiat, which now holds 25 percent of Chrysler, has made fast progress toward clearing a series of benchmarks that could take its ownership to 35 percent.


Fiat may take a 51 percent stake in the company if Chrysler repays its loans to the U.S. government. In a January conference call, Marchionne described that as his "Christmas Day wish."

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